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SEC Sues Marcum Partner Who Thinks Reviewing the Engagement Team’s Work Is For Chumps

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The ghost of SPAC past continues to haunt Marcum, this time it’s administrative and cease-and-desist proceedings against assurance partner Edward Hackert, a 20-year veteran of the firm who’s been a partner since 2006. According to the SEC order, from 2012 through 2022, Hackert served as the engagement partner for at least 240 audits of public companies, including both operating companies and special purpose acquisition companies (88 operating public companies, 152 audits of special purpose acquisition companies (SPACs). For at least 204 of those audit engagements (or approximately 85%), Hackert failed to supervise the work of the engagement team as shown by, among other things, his failure to review the work of the engagement team and to document his review by the report release date.

Per the SEC:

Hackert also repeatedly failed to assemble complete and final audit documentation within 45 days of the report release date for 126 (or approximately 53%) of the audit engagements. These failures violated PCAOB auditing standards. Further, in connection with the 2018 through 2020 audits of Ault Alliance Inc., where Hackert served as the engagement partner, Hackert violated additional PCAOB auditing standards, including failing to exercise due professional care.

Some highlights from the SEC order:

In October 2021, in a video presentation for Marcum personnel, Hackert admitted that Marcum’s audit work fell short of the PCAOB auditing standards, stating: “the standard of how we carry out our work, and document it, according to the auditing standards, . . . we’re still coming up short.” (Emphasis added.)

And:

Hackert repeatedly failed to review the work of the engagement team members and to document that review prior to the report release date. In 204 of the 240 audits on which Hackert was the engagement partner during the relevant period (or about 85%), Hackert did not review significant portions of the audit work performed or conclusions reached prior to the report release date.

For two audit engagements, the audit of Operating Company 14 for 2015 and the audit of Operating Company 18 for 2016, Hackert did not review and sign off on any work papers containing substantive audit work by the engagement team.

In 2017, in response to findings made by the PCAOB after an inspection, Marcum changed its policy to require engagement partners and engagement quality review (“EQR”) partners to sign off on certain specific work papers in every audit binder, as well as work papers related to other significant risk areas. This policy became effective for audits with fiscal years ended December 31, 2016, or later.

But even after Marcum’s policy changed, Hackert’s review and sign off practices did not improve. In at least 14 audit engagements to which this policy applied, Hackert failed to review the work of the engagement team on significant audit areas and key work papers and to evidence his review before the report release date.

This is just the latest in several blows from the SEC and PCAOB. The SEC charged former National Assurance Services Leader Alfonse Gregory Giugliano in September and threw a $10 million penalty at the firm earlier in 2023 for widespread failures related to taking on too many clients. “Marcum neglected its essential gatekeeper function in service to its own growth,” said SEC Chair Gary Gensler in June. “Marcum took on more than 600 new SPAC clients for a nearly six-fold increase in just one year, churning out audits at an unsustainable pace causing widespread quality control and audit standard violations that put its clients and the investing public at risk.”

The SEC has charged Hackert with engaging in improper professional conduct within the meaning of Section 4C(a)(2) of the Securities Exchange Act of 1934 and Rule 102(e)(1)(ii) of the SEC’s Rules of Practice and causing Marcum’s violations of Rule 2-02(b)(1) of Regulation S-X.

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